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Discovery Bank grows while Discovery Insure takes an op...

Business Maverick

Business Maverick

Discovery Bank grows while Discovery Insure takes an operating profit hit 

A general view of Discovery's office on May 21, 2021 in Sandton, South Africa. (Photo: Gallo Images/Luba Lesolle)

A complex operating environment, including the Covid-19 Delta and Omicron variants, as well as significant market volatility did nothing to deter Discovery’s overall growth, with the company reporting overall normalised operating profit up 8% to R4.9-billion in the interim period.

Discovery released interim financial results for the six months to December 2021 this week, with group chief executive and founder Adrian Gore saying that the shared-value insurance model ensured Discovery’s resilience during a tough period. 

“We remain committed to our long-term business strategy of pursuing a growth trajectory, accelerating our pace on a number of initiatives that position us well for the future,” he said. 

Discovery Bank now boasts more than 400 000 clients with 793 215 accounts and more than R9.5-billion in retail deposits. Most recently, Discovery Bank launched a real-time forex capability on its banking app that gives clients access to immediate foreign currency transactions. New offerings expected to launch in coming months include a travel platform and Discovery Pay accounts.

When it came to operating profit from each division, Discovery Invest showed the best increase, moving up 10% to bring in R517-million. However, while the other divisions showed smaller increases, their operating profits were in a different bracket with Discovery Health bringing home R1.75-billion and Discovery Life R1.93-billion. Discovery Insure took the biggest hit, with an 83% drop in operating profit to R15-million, which management attributed to a difficult period, characterised by an increased loss ratio driven by adverse weather events including hailstorms and fires along with high inflation in the cost of car parts.  

Overall normalised operating profit increased 8% to R4.9-billion, and normalised headline earnings grew  26% to R2.9-billion. Gore says the company’s key financial metrics demonstrate management’s commitment to prudent risk, capital and cash management during the pandemic, without losing focus on a robust growth strategy. Just last week, Discovery announced that it was taking a 25% stake in an Asian-based joint venture – Amplify Health –  with the AIA group. The impact of investment in new initiatives on operating profit came out at 17% of earnings, with Discovery Bank accounting for 50% of this. Shareholders would have been smiling all the way to their own banks at the thought of the 78% increase in Discovery’s headline earnings per share to 499.1 cents. 

Gore says headline earnings were positively impacted by mark-to-market foreign currency gains arising from a weakening of the rand during the reporting period, compared with losses due to the rand strengthening in the previous period. This gain was partly offset by Discovery’s substantial support for national mass vaccination campaign to the tune of R37-million during the six months to December alone. 

 “Discovery has navigated the COVID-19 pandemic across all global operations, with mortality risk in South Africa having the largest impact financially. This period was characterised by the Delta variant and towards the latter part of 2021, the highly infectious Omicron variant, which have been shown to be less clinically severe than the Delta variant,” Gore says. 

He added that Discovery’s data reveals a slow  return to pre-pandemic levels of utilisation, but the healthcare industry is still assessing the long-term impact of Covid-19 on population health and overall disease burden. Important vaccination insights included the fact that every 20% increase in vaccinations results in a 50% reduction in positive tests for the unvaccinated population. 

“Combined with high vaccination levels and previous infection immunity among our client base, our assessment was to not raise additional provisions. The significant reduction in fatality rates during the fourth Omicron wave also gives us some comfort.” 

While R3.4 billion in Covid-related claims were paid by Discovery Life in the reporting period (the highest throughout the pandemic), the earnings impact was limited given strong reinsurance arrangements and previously raised provisions proving adequate. Gore is confident that Discovery’s Covid-19 provisions, announced last year, have proven more than sufficient to buffer the business against the financial impact of the pandemic and that the remaining provisions are sufficient to withstand a potential fifth wave. BM/DM

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